National Collegiate Athletic Association

The NCAA News - News and Features

August 18, 1997

Law helps with tax treatment of corporate sponsorships

A new law will provide favorable tax treatment of corporate sponsorship payments made to all tax-exempt organizations, including most universities and colleges.

The provision was included as part of the large tax bill (H.R. 2014) passed by Congress and signed into law by President Clinton on August 5.

The NCAA, the College Football Bowl Association, other sports organizations and many nonprofit organizations worked to keep the issue alive and to ensure that Congress supported the legislation.

The corporate-sponsorship provision will create a clear distinction between "qualified sponsorship payments" (not subject to unrelated business income tax known as UBIT) and payments made to tax-exempt organizations in return for advertising the sponsor's products or services (subject to UBIT).

Under the new law, a "qualified sponsorship payment" is defined as any payment made by an individual or entity engaged in a trade or business where there is no arrangement or expectation that the sponsor will receive any substantial return benefit other than the use or acknowledgment of the sponsor's name, logo and/or product lines in connection with the activities of the tax-exempt organization that receives the payment.

"Acknowledgement" examples

The following would be considered permissible "acknowledgments" under the new law:

  • Sponsor logos that do not contain a comparative or qualitative description of the sponsor's product, services, facilities or companies.

  • Sponsor locations/addresses and telephone numbers.

  • Value-neutral descriptions, including displays or visual depictions of a sponsor's product line or services.

  • Sponsor brand or trade names and product or service listings.

    Also, the legislative history accompanying the provision mentions that the "mere distribution or display of a sponsor's products by the sponsor or the tax-exempt organization to the general public at a sponsored event, whether for free or for remuneration, will be considered to be 'use or acknowledgment' of the sponsor's product lines."

    In addition, the legislative history also discusses the provision of complimentary tickets to or receptions for sponsors in connection with a sponsorship payment. In general, those services or privileges will be treated as a separate transaction and will not be subject to UBIT if they do not constitute a substantial return benefit or if they are considered a related business activity.

    Finally, the legislative history states that the use of promotional logos or slogans that are an established part of the sponsor's identity would not, by itself, constitute advertising for purposes of determining whether a payment is a qualified sponsorship payment.

    Advertising benefits taxed

    In contrast, the new provision states that tax-exempt organizations that provide advertising benefits to their sponsors will be taxed (UBIT) on the value of those benefits. Advertising includes messages that contain:

  • Qualitative or comparative language about a sponsor's products, services, facilities or company.

  • Price information or other indications of savings or value associated with a product or service.

  • An endorsement.

  • An inducement to purchase, sell or use the sponsor's products or services (other than the distribution or display of product at a sponsored event).

    Perhaps the most important feature of the new law is that it does not contain the "tainting rule" that was a part of the 1993 IRS proposed regulations.

    Under the new law, if a sponsorship payment made to a tax-exempt organization entitles the sponsor to both product advertising and the use or acknowledgment of the sponsor's name or logo by the organization, then the tax-exempt organization will pay UBIT only on the fair market value of the advertising benefits provided the sponsor and not on the entire sponsorship payment.

    In addition, the provision addresses several other issues concerning the scope of the law. The term "qualified sponsorship payment" would not apply to payments made for sponsor materials appearing in regularly scheduled and printed periodicals of the organization that are unrelated to the sponsored event and to sponsorship payments where the amount of the payment is contingent on the attendance levels at one or more events, broadcast ratings, or other factors indicating the degree of public exposure. However, a payment contingent on the mere occurrence of an event or its broadcast would not, for that reason alone be subject to UBIT.

    The new corporate sponsorship provision will apply to payments solicited or received after December 31, 1997.

    Those desiring more information on how the law affects corporate sponsorship may contact the Association's federal relations office (202/293-3050).